AI Debt Boom Has A Skeptic: Canada’s Biggest Pension Fund Gets Selective

The rush to finance artificial intelligence is showing "bubble-like exuberance," Canada Pension Plan Investment Board’s global head of credit investments David Colla told Bloomberg in an interview.

"You cannot wake up one day and just say, ‘Well, we just had this theme that AI was great, and we woke up and it was 25% of our portfolio,’" Colla said.

The pension manager has previously invested in AI-related projects, including financing projects tied to CoreWeave (NASDAQ:CRWV). However, the $618 billion pension is taking a more cautious, selective approach to new AI opportunities, which account for roughly 3.5% of its credit portfolio.

"There will be winners and losers along the way," Colla said. "And there’s going to be a lot of volatility."

CPPIB is also closely watching off-balance-sheet financing structures, where firms create shell companies to take on the debt needed to finance data centers. Colla believes lenders should consider those obligations when assessing borrowers and examine privately-held AI developers with more opaque finances.

CPPIB’s credit portfolio saw a 3.8% return in the fiscal year ending March 31, 67% was deployed in the U.S. The pension fund’s investments include CoreWeave ($265 million) and Carlyle Aviation Partners ($1.8 billion). The fund is also a majority owner in private equity firm Antares Capital.

While the pension fund is taking a more cautious approach to AI, it remains aggressive in other credit areas. During a three-week market sell-off, the fund seized the opportunity to buy more than $3 billion in loans and bonds at discounted prices.

The fund is also seeing opportunities in the fund finance market, which has reached more than $1 trillion, according to a report earlier this year from Moody’s Ratings. 

CPPIB is expanding its fund finance business, using corporate lending and structured credit expertise to make loans backed by debt portfolios. Recent deals offer returns of 4% to 5% above benchmark rates.

The pension fund is also growing its NAV lending business, allowing private equity firms to borrow against portfolio assets rather than sell investments in weaker exit markets.

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